Market cycles make headlines, no matter which way things are going. While it’s useful to understand past cycles and be aware of market changes, that awareness won’t be of use unless your business is also prepared.
Decisions must be grounded in solid data, not the enthusiastic messages churned out by the media or a hunch about when the market will turn.
Don’t think of yourself as a surfer trying to catch one single “good wave.” Rather, your business is a long-haul ship carrying you across an ocean of never-ending waves. Being aware of all the financial components to your business is as necessary as a ship’s captain knowing every inch of the vessel, from stem to stern, and how it will react in different storms.
Chuck@eaglecorporateadvisors.com
(702) 451-3250
GPS: Financial: Timing the market is not a strategy
The only constant in the market is change. That’s the good news — turbulence does not mean disaster, it means transition.
Just like real estate, all types of businesses tend to roughly follow a 10-year market cycle. Each cycle contains three periods:
- Buyer’s Market: prices contract and acquisitions are more appealing
- Seller’s Market: prices rise and demand continues to fuel a prime selling time
- Period of Uncertainty: the market is neutral
Author: Chris W. Blees and others
Book: http://www.middlemarketma.com/
Disclosure: The 10 year cycles displayed are rough estimates with a couple year plus/minus.
This time around, we’ve endured a pandemic and its ensuing market interruptions since 2020. Just as roughly more than a decade ago we endured the Great Recession, and about a decade before that the country was staggering, emotionally and financially, from 9/11. Yet the cycle continues to move and economic forecasters continue to predict.
Many business owners see this cycle and decide their best option is to try and “time the market,” but that’s not a plan that works in any practical way. Again, don’t think like a surfer: this isn’t about catching the right wave, it’s about knowing all you can about your financials at any given point. This way, you are best able to take advantage of any part of the cycle, even if you do or don’t get lucky with the perfect timing.
Deal with market realities as they are now, not as they were last week, last month, last year, or looking ideally far into the future.
Overenthusiastic expansion by some cryptocurrency companies is already resembling the dot-com collapse of 20 years ago. Even in traditional brick-and-mortar businesses, it’s not hard to think of establishments that went from two locations to 20, trying to cash in on a market upswing, only to be at zero locations a few short years later.
Anticipating a shift in the market landscape will only benefit businesses that know their financials — not just a snapshot of current numbers but a long-term awareness of their trends and industry trends, which can only be obtained from tracking data accurately over time:
- What direction has your profit margin been heading?
- Has any aspect of your business suddenly taken a turn?
- What ups and downs happen in your industry with predictable regularity?
This knowledge helps you act with confidence, knowing what options are best for your current financial situation. Solid records on cash flow, profitability, financial and labor efficiency ratios over time will give you a reliable picture of trends.
A trusted advisor can help you examine your current financials and set up record keeping that tracks the data from here out, making what used to be invisible clear as day. We can also help you determine where your business is right now and how that aligns with opportunities the current market may provide.
Time sometimes doesn’t move the same for everyone. Preparedness is the force that makes time relative as markets change: time speeds up or slows down depending on how informed and prepared a business owner is for the market changes.
In other words, you can either be bogged down searching for data, making shifts in the market seem like sudden, looming emergencies, or you can have a massive head start by keeping your financial records clear. Being prepared will buy you time and peace of mind as others scramble. While we might be in a prime selling time, data about your own financial situation must drive your decisions, no matter what market cycle the rest of the country is in.
Sometimes it makes sense to go the same direction everyone else seems to be going, but real wisdom is knowing when to go against the tide. Being in control of all your financial data, both internal and external, means you can make informed decisions on many questions that arise as markets shift:
- Maybe it’s a good time to expand, but you don’t have the means to buy needed equipment — so you rent.
- Although the market is contracting, you may be uniquely positioned to acquire a competing business that overreached and is now struggling.
- You may have the means to expand your staff to fully take advantage of a changing market, so you hire strategically while others aren’t offering the right benefits.
- Your industry is hosting a conference, and you decide to attend so that your team can level up and your business gains some visibility.
- Swings in consumer behavior might mean it’s a perfect time for a new marketing campaign, and your financials will dictate how much the budget should be.
- Your business can afford to make an impact in the community by hosting a golf tournament or participating in a charity event.
Or, while others are out spending, awareness of your business’s financials can keep you from following the herd mentality and instead rest in the knowledge that, for you, it isn’t the right time.
Eagle Corporate Advisors works with business owners, like you, to help increase the bottom line, raise the value of your business, and fortify your business interests so you can take advantage of any market circumstances.